Topic 12: What are advantages of mutual funds over individual investors of corporate securities?

*) A mutual fund is a company that invests on behalf of its shareholders. People purchase shares of the mutual funds, and the company pools the money of all these people. The company invests the pooled money in a variety of securities, including stocks, corparate bonds and government bonds. Income earned by the fund is distributed to the shareholders in accordance with the number of shares they own.

*) The advantages of mutual funds include:

1.Professional management. The employees of a mutual fund are trained to study financial information, economic trends and political developments. Few investors have the time or expertise to do this.

2. Diversification: To reduce the risks of ownership, mutual funds invest in a wide variety of stocks and bonds.

3. Liquidity: A mutual fund investment can be turned into cash quickly and easily.

  However, mutual funds are not risk-free. Generally, funds that invest in government securities carry less risk than the ones that invest in corporate stocks. In addition, many different companies sell mutual funds. Some of these companies are better managed than others. So even when investing in mutual funds, investigate before you invest.